M&A Integrations vs. Alliances – mechanisms for growth in volatile times

Interview with Karina von Detten, Head of Portfolio Solutions (Nufarm EuMEA) and David Colligan, Head of 3rd Party Strategic Relationships (Nufarm Global). One main finding of PwC’s M&A Integration Survey 2020 is that “deals are shifting to transactions that can deliver value in a slower economy.” Next to highlighting different types of deals it is also key to examine the importance of different vehicle types that can deliver value. Similar to M&A integrations, alliances can be an integral of a company’s growth strategy. Due to the uncertain economic outlook and the current challenge of constantly high valuations, it is especially interesting to understand which factors influence companies to partner or build alliances.

Considering the strategic rationale of acquisitions and partnerships, we asked our clients at Nufarm to share their thoughts on a previous integration: Karina von Detten, Head of Portfolio Solutions, Nufarm EuMEA, and David Colligan, Head of 3rd Party Strategic Relationships, Nufarm Global. Karina as part of the Integration Steering Committee and David, as Integration Manager, completed the portfolio acquisition of Century and Surf with the support of the PwC in 2018. Below’s interview brings further insights on key success factors of integrations and strategic partnerships as opportunities to grow.

What decision-making criteria does Nufarm apply when deciding to buy or partner with another company, for example the acquisition of Century and Surf?

Karina von Detten: When deciding whether to buy or partner with another company, we usually differentiate between five criteria: (1) portfolio enhancement: accessing core capabilities vs. specific parts, (2) level of control: importance of ownership vs. partnership, (3) value related costs for each option, (4) external factors: market and other dynamics, such as timing and (5) the role of divestments. 

The background to Nufarm’s acquisitions in 2018 is the following: Increasing challenges, such as many innovations going “off-patent” and rising operating costs, led to a period of consolidation in the Crop Protection industry. In an anti-trust review, the European Commission dictated certain asset divestments to rebalance the market. Nufarm was presented with a “one-time” opportunity to deliver on its strategy to grow fast but sustainably in Europe. Prior to the acquisitions Nufarm was a low to mid-tier company with a largely commoditized portfolio. Its growth strategy was clear, but it needed to broaden its portfolio into segments which were not well covered.  We needed to gain significance in the market with differentiated, value-adding solutions for our customers. The window of opportunity was open for approximately four months, and Nufarm aligned all its forces to make it happen.

The deals added approx. 50% of revenues to the European Nufarm business. Reflecting on the integration, what was key in realizing go-to-market goals and monitoring the topline?

Karina von Detten: With Century and Surf deals, Nufarm acquired specific portfolio assets worth ~€600m. We identified three focus areas in order to realize the business case: portfolio, go-to-market and supply chain/procurement. Managing the regulatory transfers through a very rigorous process and executing the detailed manufacturing transfer plan with absolute discipline were key for us.

Additionally, achieving the deal value for an acquisition largely depends on how well the buyer can capture the newly combined synergies. Our experience shows us that a pragmatic business case approach with defined KPIs is most suitable for monitoring top and bottom-line synergies. Otherwise, it is burdensome for the organization, and often too theoretical due to the effect of market dynamics on revenues irrespective of the portfolio.

Which success factors were essential for the integration of Century and Surf into Nufarm’s business?

David Colligan: During this integration, speed as well as direction setting were crucial: The Clean Team enabled us to “hit the ground running” on closing by analyzing and structuring sensitive information pre-closing. This was critical to give us the data and insights we needed right from the start. In addition, the consultants established a clear structure for the integration management office (IMO).  They supported the integration program with rigorous planning – this was critical to manage the many complex interdependencies. Setting up the integration steering committee, and thus involving European and Global level leadership, has ensured fast and clear decision-making.  

When developing future capabilities what are the rationales for Nufarm to acquire companies, and which dynamics are shaping the decision to build strategic partnerships?

Karina von Detten: In Europe specifically, agriculture is going through major changes. Between the European Commission’s Green Deal targets, and the slowing innovation rates of R&D companies, it is fair to say that we are acting in a volatile environment. We see the potential of smaller Crop Protection companies exiting the industry due to high investment requirements to support products from a regulatory perspective. These could present one rationale for acquisition. Biological solutions and “new tech”, i.e. a clear portfolio enhancement, could be complementary acquisitions to the current business and respond to future needs in European farming. 

David Colligan: Considering strategic partnerships, when it comes to enhancing our portfolio, in many ways the drivers are the same as acquisitions but the cost of entry - the cost of partnership deals - is understandably lower when compared to acquisitions. That means that we are seeing an increasing trend in the industry for companies that are historically competitors to “license out” or provide distribution rights to their innovations. The rationale from the innovation owner’s perspective is that they increase the market share of their solutions. Correspondingly, the companies licensing in get access to complementary solutions to enhance their portfolio. As long as both parties carefully structure the deals for a “win-win”, a sustainable partnership can be built.

I am absolutely certain that we will continue to see acquisitions in the industry but growth through strategic partnerships is definitely gaining momentum.

In the future, which things which you have learned from the previous integrations would you apply?

David Colligan: The Century and Surf deals presented a “one-time” opportunity for Nufarm to deliver on its strategy – and after diligent integration work these acquisitions are now paying off.  However, we have learnt from our experience:

To begin with, next time we would involve the integration lead earlier in the deal process. Specifically, that would involve shaping the purchase agreements; in our case, the asset purchase agreement (APA) / transitional service agreement (TSA) conditions for the deal. The details in these documents set the “guardrails” for the integration and cannot be left open to interpretation. These conditions need to be scrutinized by the different functions to avoid ambiguity. Of course, in that phase of any deal, you find yourself running against a tight timeline, so a balance needs to be struck.

Finally, we would place an increased emphasis on preparing the sales and marketing teams to maximize returns on the new assets much faster. It’s easy to get distracted by complex integration demands in the back office but as the money and returns are generated at the sharp end – we’d get the back-office basics right but invest more in our commercial teams and customer efforts with any new assets. 

Karina von Detten: Something else which we learnt is that small acquisition targets can be more work than expected. Companies tend to underestimate the integration work to be performed when acquiring smaller assets. The key here is to find the right resources, to set up the right sizing of the project organization and not to underestimate the cultural fit when integrating. And as mentioned by David earlier, get the Integration Lead involved before signing the Deal. 

All aspects considered, we’re very happy with the acquisitions – strategically they were exactly what we needed and they’re now delivering to expectations. On top of that we’ve learnt a lot – we’ve built up a corporate capability to better manage such acquisitions in the future and apply what we have learnt to the development of our strategic partnerships.